US House Prices Falling Faster Than During The Great Depression

Unbelievable that 95 percent of so called "Experts" didn´t see this coming....... These are often the same that are now calling for the bottom and are declaring the recession that never was is already over......

Unfassbar das selbst im Jahr 2006/2007 95% der sogennaten Experten das Unheil nicht haben kommen sehen.... In der Regel sind das dieselben "..............." ( möchte höflich bleiben ) die den Boden gesehen haben und die nicht vorhanden gewesene Rezession als beendet erklären.....

Economist America's house prices are falling even faster than during the Great Depression

AS HOUSE prices in America continue their rapid descent, market-watchers are having to cast back ever further for gloomy comparisons. The latest S&P/Case-Shiller national house-price index, published this week, showed a slump of 14.1% in the year to the first quarter, the worst since the index began 20 years ago. Now Robert Shiller, an economist at Yale University and co-inventor of the index, has compiled a version that stretches back over a century. This shows that the latest fall in nominal prices is already much bigger than the 10.5% drop in 1932, the worst point of the Depression. And things are even worse than they look. In the deflationary 1930s house prices declined less in real terms. Today inflation is running at a brisk pace, so property prices have fallen by a staggering 18% in real terms over the past year.

Joke Of The Day....."Libor"

Nice to see that almost $ 90 trillion ( according to the WSJ / FT Deutschland sees 350 billion, but i think the WSJ is correct. Update Bloomberg : .... benchmark rate for $350 trillion in derivatives and corporate bonds and 6 million U.S. mortgages ) are tied to a manipulated and unregulated rate.... It´s even more reassuring that the Britisch Bankers´ Association is still seeing no need to reform their methodology.... Chapeau!

Ist es nicht wunderbar zu sehen das fast 90 Billionen $ ( lt. WSJ / FT Deutschland sieht 350 Mrd., bin mir aber sicher das diesesmal das WSJ recht hat. Update Bloomberg :.... benchmark rate for $350 trillion in derivatives and corporate bonds and 6 million U.S. mortgages ) an verzinslichen Papieren auf einem Zinssatz basieren der erwiesenermaßen manipuliert wird. Und alles ohne das besondere Verrenkungen von Seiten der Banken notwendig sind....... Noch dummdreister wird es dann wenn die British Bankers´Association trotz alledem keinerlei Notwendigkeit einer grundlegenden Reform zu sehen scheint..... Glückwunsch!

Study Casts Doubt on Key Rate WSJ
LONDON -- Major banks are contributing to the erratic behavior of a crucial global lending benchmark, a Wall Street Journal analysis shows.

The Journal analysis indicates that Citigroup Inc., WestLB, HBOS PLC, J.P. Morgan Chase & Co. and UBS AG are among the banks that have been reporting significantly lower borrowing costs for the London interbank offered rate, or Libor, than what another market measure suggests they should be. Those five banks are members of a 16-bank panel that reports rates used to calculate Libor in dollars.

That has led Libor, which is supposed to reflect the average rate at which banks lend to each other, to act as if the banking system was doing better than it was at critical junctures in the financial crisis. The reliability of Libor is crucial to consumers and businesses around the world, because the benchmark is used by lenders to set interest rates on everything from home mortgages to corporate loans.

Faced with suspicions by some bankers that their rivals have been low-balling their borrowing rates to avoid looking desperate for cash, the British Bankers' Association, which oversees Libor, is expected to report Friday on possible adjustments to the system. That report isn't expected to recommend any major changes, according to people familiar with the association's deliberations. Update : The British Bankers' Association decided not to change the way the London interbank offered rate is set, rebuffing investors and strategists who said the measure has become unreliable as a gauge of borrowing costs.

> The first step to make Libor ( to put it mildly) "less important"......... Update : Libor Proxies Gain as Traders Seek Truth With Swaps

> Diese Unverschämtheit ist schon fast wieder bewundersnwert. Ohne Frage wird das mittelfristig zu einem erheblichen Bedeutungsverlust von Libor führen.... Update : Libor Proxies Gain as Traders Seek Truth With Swaps

In order to assess the borrowing rates reported by the 16 banks, the Journal crunched numbers from another market that provides a window into the financial health of banks: the default-insurance market. Until recently, the cost of insuring against banks defaulting on their debts moved largely in tandem with Libor -- both rose when the market thought banks were in trouble.

But beginning in late January, as fears grew about possible bank failures, the two measures began to diverge, with reported Libor rates failing to reflect rising default-insurance costs, the Journal analysis shows. The gap between the two measures was wider for Citigroup, Germany's WestLB, the United Kingdom's HBOS, J.P. Morgan Chase & Co. and Switzerland's UBS than for the other 11 banks. One possible explanation for the gap is that banks understated their borrowing rates.....

Confidence in Libor matters, because the rate system plays a vital role in the global economy. Central bankers follow it closely as a barometer of the banking system's health, and to decide how much to adjust interest rates to keep their economies growing. Payments on nearly $90 trillion in dollar-denominated mortgage loans, corporate debt and financial contracts rise and fall according to Libor's movements.

Impact on Payments
If dollar Libor is understated as much as the Journal's analysis suggests, it would represent a roughly $45 billion break on interest payments for homeowners, companies and investors over the first four months of this year. That's good for them, but a loss for others in the market, such as mutual funds that invest in mortgages and certain hedge funds that use derivative contracts tied to Libor.

At times of market turmoil, banks face a dilemma. If any bank submits a much higher rate than its peers, it risks looking like it's in financial trouble. So banks have an incentive to play it safe by reporting something similar -- which would cause the reported rates to cluster together.

In fact, the Journal analysis shows that during the first four months of this year, the three-month borrowing rates reported by the 16 banks on the Libor panel remained, on average, within a range of only 0.06 percentage point -- tiny in relation to the average dollar Libor of 3.18%.

Those reported rates "are far too similar to be believed," says Darrell Duffie, a Stanford University finance professor. Mr. Duffie was one of three independent academics who reviewed the Journal's methodology and findings at the paper's request. All three said the approach was a reasonable way to analyze Libor.

At times, banks reported similar borrowing rates even when the default-insurance market was drawing big distinctions about their financial health. On the afternoon of March 10, for example, investors in the default-insurance market were betting that WestLB, which was hit especially hard by the credit crisis, was nearly twice as likely to renege on its debts as Credit Suisse Group, a Swiss bank that was perceived to be in better shape. Yet the next morning, for Libor purposes, WestLB reported the same borrowing rate as Credit Suisse. A WestLB spokesman says the bank provides accurate data.

In addition to borrowing from other banks, banks can borrow in the commercial-paper market, where they issue short-term IOUs to investors such as mutual funds. In mid-April, UBS, which has suffered some $38 billion in write-downs on investments gone bad, was offering to pay an annual rate of about 2.85% to borrow dollars for three months in the commercial-paper market, according to a person familiar with the matter. But when it reported for Libor purposes on April 16, UBS said it could borrow for three months from other banks at 2.73% -- in line with all the other panel banks. A UBS spokeswoman declined to comment. ( see Interactive Chart )

Out of Whack
To gauge how much the borrowing rates reported by the 16 banks on the Libor panel might be out of whack, the Journal calculated an alternate "borrowing rate" for each bank using information from the default-insurance market.

In mid-March, the bank borrowing rates calculated using default-insurance data rose sharply amid growing fears about the financial health of banks, which culminated in the collapse of Bear Stearns Cos. But Libor actually declined.

Between late January and April 16, when the Journal first reported concerns about Libor's accuracy, Citigroup's reported rates differed the most from what the default-insurance market suggested. On average, the rates at which Citigroup said it could borrow dollars for three months were about 0.87 percentage point lower than the rate calculated using default-insurance data, the Journal's analysis shows. A Citigroup spokesman says, "We continue to submit our Libor rates at levels that accurately reflect our perception of the market."

The difference was 0.7 percentage point for WestLB, 0.57 point for HBOS, 0.43 for J.P. Morgan, and 0.42 for UBS. Royal Bank of Canada's reported rates came closest to the market-based calculation -- there was no significant difference. A HBOS spokesman says the bank's Libor quotes are a "genuine and realistic" indication of its borrowing costs. J.P. Morgan and UBS declined to comment.

UPDATE: Here are some other opinion from Alea and Felix Salmon that questioning the methodoligy from the WSJ. I think they are making a good point. That doesn´t change my point that the calculation of Libor is still flawed.

Hier ein paar andere Meinungen von Alea und Felix Salmon die die Berechnungsmethodik vom WSJ stark in Frage stellen. Und ich denke Sie liegen damit richtig. Das änderts aber nichts daran das die Berechnung von Libor nach wie vor mehr als fragwürdig ist.

Overall, in the first four months of this year, the three-month and six-month dollar Libor rates were about a quarter percentage point lower than the borrowing rates suggested by the default-insurance market, the analysis shows. After banks adjusted their Libor rates following news of the BBA review in mid-April, the difference shrunk to about 0.15 percentage point. ....

After the Journal reported on April 16 that bankers suspected rivals of intentionally understating their borrowing rates, the BBA said it was speeding up a review of Libor. It said it would kick out any bank found to be reporting inaccurate rates. Over the next two days, banks raised their reported rates, causing dollar-denominated Libor to log its biggest jump since August.

That increase surprised some homeowners, including Bill Petit, a real-estate broker with a $470,000 adjustable-rate mortgage on his Del Mar, Calif., home. "It doesn't seem natural," he says. "If it would have done this over a month or so, I could have understood it." He says the move caused his monthly mortgage payment to jump by $98 more than he was expecting, raising it to $2,056.25...

Ms. Knight, the BBA chief, says there's no need to replace Libor, which has been used widely as a benchmark for more than two decades. "I see no reason suddenly to up sticks and change a process that has actually served the financial community world-wide extremely well for a very considerable number of years," she says.

"Know Nukes" / Minyanville TV

Hoffy & Boo are rocking!

With energy costs skyrocketing, nuclear power is getting a second look. Hoofy and Boo delve into a radioactive subject that has the potential to mushroom into the next big energy play.

CDO Watch: Ratings Shopping

Oh boy, unfortunately no late "Fools Day Joke"....... "Dead CDO´s Walking"......Got Gold ?

Selbstverständlich kein verspäteter Arpilscherz, sondern nur der ganz normale Wahnsinn......Warum nicht gleich so.... Einfach das nicht genehme Rating kurz vorm Downgrade eliminieren und die Welt ist wieder in Ordnung..... Bin mir sicher das dieser Trend an Fahrt gewinnen wird......


CDO watch: ratings shopping FT Alphaville !!

Several CDOs are going into liquidation on Tuesday - a sign, perhaps, that senior noteholders are losing their nerve amid more signs of deterioration in MBS fundamentals, as reported by the rating agencies this week.
But something slightly more interesting is happening with a CDO called Palladium II. As filed today with the Irish Stock Exchange:

REQUEST FOR NOTEHOLDER CONSENT26 May 2008 Omega Capital Investments II p.l.c.…Notice is hereby given that it is proposed to request that Fitch Ratings Limited withdraws the rating which it has assigned to each class of the Notes so that the Notes will be rated solely by Standard & Poor’s Ratings Services, a division of McGraw-Hill Companies, Inc.

The reason? Surely something to do with this announcement, issued on Friday:

Fitch Ratings-London-23 May 2008: Fitch Ratings has today placed Omega Capital Investment II Plc’s Palladium CDO II (Palladium II) secured floating- and fixed-rate notes due in December 2014 on Rating Watch Negative (RWN), as listed below. The RWN actions reflect Fitch’s view on the credit risk of the rated notes following the release of its new Corporate CDO rating criteria.

Fitch goes on to detail the likely downgrades to the various tranches of Palladium, with the triple-A seniors looking to be cut five notches to single A, and the subordinate tranches moving to BBB.

The reason then, that Palladium’s managers, Omega Capital Investments (BNP Paribas), are so keen to get the Fitch ratings removed before the downgrades occur, is because downgrades would trigger a default.

As FT Alphaville reported on Friday (from Total Securitisation), rating downgrades have been the primary cause of CDO defaults in almost all cases so far.

Palladium II, it appears, isn’t the only CDO withdrawing Fitch ratings. There’s also Taberna (Fitch ratings withdrawn Friday).

Ratings shopping in action? Certainly a clear sign that the market incentivises looser rating standards. Unwelcome downgrades mean you lose your business.

Pimco´s Bill Gross Must Read Piece On CPI

The following post from Bill Gross is worth reading every single sentence. While i´m with Mish on what Inflation is ( see Inflation: What the heck is it? ) it is very telling how the US is able in depressing the symptoms of inflation. But as long as foreigners are willing to destroy money in buying US treasuries and agency paper one has to congratulate the US for their excellent PR ( no sarcasm! )........ I´m staying with gold......

Ich empfehle dringend das komplette Posting von Bill Gross zu lesen. Bekanntermaßen sehe ich die Definition von Inflation wie Mish ( siehe Inflation: What the heck is it? ). Es ist schon bemerkenswert wie die USA es schaffen die Symptome der Inflation auf äußert vielfältige Weise zu manipulieren. Der Irakfeldzug ist verglichen damit ein Lacher. Solange Sie es trotzdem schaffen genügend ausländische Investoren zu finden die Gelder besonders in Staatsanleihen und Papieren von Fannie & Freddie zu versenken kann man es den USA nicht einmal übel nehmen die kreative Berechnung jenseits von Enron & Co zu heben. Man muß hier ausdrücklich das herausragende PR loben ( das meine ich ehrlich ). Ich für meinen Teil bleibe da lieber beim Gold......

Thanks to Wall Street Follies

Hmmmmm? Gross / Pimco - What this country needs is either a good 5¢ cigar or the reincarnation of an Illinois “rail-splitter” willing to tell the American people “what up” – “what really up.” We have for so long now been willing to be entertained rather than informed, that we more or less accept majority opinion, perpetually shaped by ratings obsessed media, at face value. After 12 months of an endless primary campaign barrage, for instance, most of us believe that a candidate’s preacher – Democrat or Republican – should be a significant factor in how we vote. We care more about who’s going to be eliminated from this week’s American Idol than the deteriorating quality of our healthcare system. Alternative energy discussion takes a bleacher’s seat to the latest foibles of Lindsay Lohan or Britney Spears and then we wonder why gas is four bucks a gallon. We care as much as we always have – we just care about the wrong things: entertainment, as opposed to informed choices; trivia vs. hardcore ideological debate.

It’s Sunday afternoon at the Coliseum folks, and all good fun, but the hordes are crossing the Alps and headed for modern day Rome – better educated, harder working, and willing to sacrifice today for a better tomorrow. Can it be any wonder that an estimated 1% of America’s wealth migrates into foreign hands every year? We, as a people, are overweight, poorly educated, overindulged, and imbued with such a sense of self importance on a geopolitical scale, that our allies are dropping like flies. “Yes we can?” Well, if so, then the “we” is the critical element, not the leader that will be chosen in November. Let’s get off the couch and shape up – physically, intellectually, and institutionally – and begin to make some informed choices about our future. Lincoln didn’t say it, but might have agreed, that the worst part about being fooled is fooling yourself, and as a nation, we’ve been doing a pretty good job of that for a long time now.

I’ll tell you another area where we’ve been foolin’ ourselves and that’s the belief that inflation is under control. I laid out the case three years ago in an Investment Outlook titled, “Haute Con Job.” I wasn’t an inflationary Paul Revere or anything, but I joined others in arguing that our CPI numbers were not reflecting reality at the checkout counter. In the ensuing four years, the debate has been joined by the press and astute authors such as Kevin Phillips whose recent Bad Money is as good a summer read detailing the state of the economy and how we got here as an “informed” American could make.

Let me reacquaint you with the debate about the authenticity of U.S. inflation calculations by presenting two ten-year graphs – one showing the ups and downs of year-over-year price changes for 24 representative foreign countries, and the other, the same time period for the U.S. An observer’s immediate take is that there are glaring differences, first in terms of trend and second in the actual mean or average of the 2 calculations. These representative countries, chosen and graphed by Ed Hyman and ISI, have averaged nearly 7% inflation for the past decade, while the U.S. has measured 2.6%. The most recent 12 months produces that same 7% number for the world but a closer 4% in the U.S.

This, dear reader, looks a mite suspicious. Sure, inflation was legitimately much higher in selected hot spots such as Brazil and Vietnam in the late 90s and the U.S. productivity “miracle” may have helped reduce ours a touch compared to some of the rest, but the U.S. dollar over the same period has declined by 30% against a currency basket of its major competitors which should have had an opposite effect, everything else being equal. I ask you: does it make sense that we have a 3% – 4% lower rate of inflation than the rest of the world? Can economists really explain this with their contorted Phillips curve, output gap, multifactor productivity theorizing in an increasingly globalized “one price fits all” commodity driven global economy? I suspect not. Somebody’s been foolin’, perhaps foolin’ themselves – I don’t know. This isn’t a conspiracy blog and there are too many statisticians and analysts at the Bureau of Labor Statistics (BLS) and Treasury with rapid turnover to even think of it. I’m just concerned that some of the people are being fooled all of the time and that as an investor, an accurate measure of inflation makes a huge difference.
The U.S. seems to differ from the rest of the world in how it computes its inflation rate in three primary ways: 1) hedonic quality adjustments, 2) calculations of housing costs via owners’ equivalent rent, and 3) geometric weighting/product substitution. The changes in all three areas have favored lower U.S. inflation and have taken place over the past 25 years, the first occurring in 1983 with the BLS decision to modify the cost of housing. It was claimed that a measure based on what an owner might get for renting his house would more accurately reflect the real world – a dubious assumption belied by the experience of the past 10 years during which the average cost of homes has appreciated at 3x the annual pace of the substituted owners’ equivalent rent (OER), and which would have raised the total CPI by approximately 1% annually if the switch had not been made.

In the 1990s the U.S. CPI was subjected to three additional changes that have not been adopted to the same degree (or at all) by other countries, each of which resulted in downward adjustments to our annual inflation rate. Product substitution and geometric weighting both presumed that more expensive goods and services would be used less and substituted with their less costly alternatives: more hamburger/less filet mignon when beef prices were rising, for example. In turn, hedonic quality adjustments accelerated in the late 1990s paving the way for huge price declines in the cost of computers and other durables. As your new model MAC or PC was going up in price by a hundred bucks or so, it was actually going down according to CPI calculations because it was twice as powerful. Hmmmmm? Bet your wallet didn’t really feel as good as the BLS did.

In 2004, I claimed that these revised methodologies were understating CPI by perhaps 1% annually and therefore overstating real GDP growth by close to the same amount. Others have actually tracked the CPI that “would have been” based on the good old fashioned way of calculation. The results are not pretty, but are undisclosed here because I cannot verify them. Still, the differences in my 10-year history of global CPI charts are startling, aren’t they? This in spite of a decade of financed-based, securitized, reflationary policies in the U.S. led by the public and private sector and a declining dollar. Hmmmmm?

In addition, Fed policy has for years focused on “core” as opposed to “headline” inflation, a concept actually initiated during the Nixon Administration to offset the sudden impact of OPEC and $12 a barrel oil prices! For a few decades the logic of inflation’s mean reversion drew a fairly tight fit between the two measures, but now in a chart shared frequently with PIMCO’s Investment Committee by Mohamed El-Erian, the divergence is beginning to raise questions as to whether “headline” will ever drop below “core” for a sufficiently long period of time to rebalance the two. Global commodity depletion and a tightening of excess labor as argued in El-Erian’s recent Secular Outlook summary suggest otherwise.

The correct measure of inflation matters in a number of areas, not the least of which are social security payments and wage bargaining adjustments. There is no doubt that an artificially low number favors government and corporations as opposed to ordinary citizens. But the number is also critical in any estimation of bond yields, stock prices, and commercial real estate cap rates. If core inflation were really 3% instead of 2%, then nominal bond yields might logically be 1% higher than they are today, because bond investors would require more compensation. And although the Gordon model for the valuation of stocks and real estate would stress “real” as opposed to nominal inflation additive yields, today’s acceptance of an artificially low CPI in the calculation of nominal bond yields in effect means that real yields – including TIPS – are 1% lower than believed. If real yields move higher to compensate, with a constant equity risk premium, then U.S. P/E ratios would move lower. A readjustment of investor mentality in the valuation of all three of these investment categories – bonds, stocks, and real estate – would mean a downward adjustment of price of maybe 5% in bonds and perhaps 10% or more in U.S. stocks and commercial real estate.

A skeptic would wonder whether the U.S. asset-based economy can afford an appropriate repricing or the BLS was ever willing to entertain serious argument on the validity of CPI changes that differed from the rest of the world during the heyday of market-based capitalism beginning in the early 1980s. It perhaps was better to be “entertained” with the notion of artificially low inflation than to be seriously “informed.” But just as many in the global economy are refusing to mimic the American-style fixation with superficialities in favor of hard work and legitimate disclosure, investors might suddenly awake to the notion that U.S. inflation should be and in fact is closer to worldwide levels than previously thought. Foreign holders of trillions of dollars of U.S. assets are increasingly becoming price makers not price takers and in this case the price may not be right. Hmmmmm?

What are the investment ramifications? With global headline inflation now at 7% there is a need for new global investment solutions, a role that PIMCO is more than willing (and able) to provide. In this role we would suggest: 1) Treasury bonds are obviously not to be favored because of their negative (unreal) real yields. 2) U.S. TIPS, while affording headline CPI protection, risk the delusion of an artificially low inflation number as well. 3) On the other hand, commodity-based assets as well as foreign equities whose P/Es are better grounded with local CPI and nominal bond yield comparisons should be excellent candidates. 4) These assets should in turn be denominated in currencies that demonstrate authentic real growth and inflation rates, that while high, at least are credible. 5) Developing, BRIC-like economies are obvious choices for investment dollars.

Investment success depends on an ability to anticipate the herd, ride with it for a substantial period of time, and then begin to reorient portfolios for a changing world. Today’s world, including its inflation rate, is changing. Being fooled some of the time is no sin, but being fooled all of the time is intolerable. Join me in lobbying for change in U.S. leadership, the attitude of its citizenry, and (to the point of this Outlook) the market’s assumption of low relative U.S. inflation in comparison to our global competitors.

The Flexible Friend.....Some Credit Card Data

Thank god the credit crisis and the recession that never started are already over.....But i assume it´s hard even for a bull trying to explain the already sky high delinquency rate.... Nice to see that the Fed ( just a few weeks ago ) and other central banks are willing to take the securitized credit card debt as collateral. Lets hope the haircut will be big enough and the way too often toxic waste won´t be rolled over indefintely.......... This post ECB Concerned Over Swap-O-Rama Exit Strategy from Mish is showing that there are already schemes in place to "design" securities to limit the haircut & to make them available as collateral . One more reason to be bullish on gold.... Especially when you take a look at this graph Federal Reserve Balance Sheet

Gottseidank ist die Kreditkrise und die nicht eingetroffenen Rezession bereits vorbei....... Dann aber sollten die bereits jetzt astronomischen Rückstandsraten bei den Kreditkarten selbst für die Daueroptimisten aber für noch mehr Beunruhigung sorgen. Immerhin ist es gut zu wissen das zur Not die Fed ( erst seit einigen Wochen ) und andere Zentralbanken auch die verbrieften Kreditkartenforderungen als Sicherheit akzeptieren. Bleibt nur zu hoffen das die angenommenen Risikoabschläge ausreichend sein werden und das diese oft fragwürdigen Papiere nicht auf alle Ewigkeit prolongiert werden ..... Wie dieses Posting ECB Concerned Over Swap-O-Rama Exit Strategy von Mish zeigt hat es nicht lange gedauert bis die Marktteilnehmer Strategien entwickelt haben um dieses System zu Ihren Gunsten zu nutzen. Wenn man das mit einem Blick auf die grafische Darstellung der FED Bilanz kombiniert hat man leicht einen gewichtigen Grund mehr langfristig eine bullishe Meinung zum Gold zu haben....UPDATE: Das paßt wie die Faust auf Auge.....Zentralbanken können auch bankrottgehen FAZ & Sind Verbraucherkredite der nächste Krisenherd? FT Deutschland
Credit-Card Firms May Look Alluring, But Threats Loom WSJ
The quickest way to pay top dollar for something you don't need is to make an impulse buy on your credit card. Investors eyeing shares in credit-card companies as a quick way to profit from an economic recovery should also resist the temptation to buy right now.

A growing feeling that stand-alone credit-card lenders will weather the economic slowdown has started to lift shares in firms like American Express Co., Discover Financial Services and Capital One Financial Corp.

But recent credit-card data indicate that none of the big card companies -- including the large card units at banks like Bank of America Corp., Citigroup Inc. and J.P. Morgan Chase & Co. -- are in the clear. Rising defaults could weigh on earnings for longer than expected.

Since the credit crisis began, investors have expected rising charge-offs -- the term given for losses caused by defaults -- at credit-card companies. Two big negatives were identified: Job losses and, for many borrowers, a sharply reduced ability to use home-equity loans to pay off more expensive card balances.

Credit did deteriorate. Moody's Investors Service reports that, for the card lenders it tracks, the annualized charge-off rate -- which measures defaults as a percentage of loans outstanding -- rose to 6.05% in March from 4.64% a year earlier. The charge-off rate peaked at just over 7% during the 1991 and 2001 recessions, according to Moody's.

Credit-card bulls -- believing that a recession may be avoided -- think charge-offs won't go to recession highs. If so, firms like Capital One could look forward to sharply higher earnings as lower defaults would allow lenders to ease off on the expense of building their loan-loss reserves.

But two key data points indicate defaults climbing higher, not falling fast.

First, card borrowers are starting to pay back less of their outstanding balances each month. Analysts at Oppenheimer & Co. say that a sustained decline in the amount borrowers repay each month, compared with a year-earlier, can be a leading indicator that borrowers will start to fall behind on payments.

Oppenheimer calculates that, for the companies it covers, borrowers paid back 19% of their balance on average in April, down from 19.7% in the year-earlier period. American Express's borrowers paid down 23.8% of their balances in April, down from 25% a year ago, according to Oppenheimer. Conversely, Capital One borrowers paid down 18.5% of their balances last month, up from 17.6% a year earlier.

Also worrisome are data from Moody's suggesting that borrowers are finding it harder to become current on credit-card loans once they fall behind. The ratings firm notes that the amount of loans on which borrowers have skipped three or more payments has started to rise more quickly than loans that have missed one or two. Once borrowers are three payments behind, fewer of them ever catch up.

Federal Reserve data say revolving credit outstanding -- which tracks credit-card balances -- increased 6.7% in the first quarter, compared with the year-earlier period. Borrowers are taking on more debt to support spending through the slowdown.
It's a gamble for card companies to lend more to people who are turning to relatively expensive debt because they're cash strapped.

And it's a bad bet for investors to load up on the card companies taking that gamble.

Let Them Pay For Their Arrogance.... :-)

I hope National Geographic had to pay big bucks for their arrogance ..... How you cannot see the potential from watching the clip is beyond me. But after all what we have seen from other "experts" on Wall Street........I was blown away after watching the clip the first time in May 2007 A nice weekend to all non experts :-)

Bleibt zu hoffen das die Verantwortlichen von National Geographic richtig tief in die Tasche greifen mußten um sich zumindest verspätet die Rechte zu sichern.... Wie man das Potential beim ersten Mal nicht erkennen konnte ist mir unbegreiflich. Aber nach alledem was wir von den sog. "Experten" der Wall Street & Co zu sehen bekommen haben..... Ich jedenfalls habe im Mai 2007 eine Gänsehaut bekommen. Allen "Nicht-Experten" ein schönes Wochenende :-)

You’ve Seen the YouTube Video; Now Try the Documentary NYT
There is a moment of foreshadowing at the end of “Battle at Kruger,” the eight-minute African safari video that has drawn more than 30 million views on YouTube.

David Budzinski, a tourist from Texas, has just recorded a stunning scene straight out of a wildlife documentary. A small pride of lions and a crocodile have pinned down a cape buffalo calf, prompting an angry herd of buffalo to fight off the predators and save the babe. A fellow traveler remarks, “You could sell that video!”

After returning home, Mr. Budzinski tried, but National Geographic and Animal Planet were not interested. Only after the battle — alternately terrifying and heart-warming — became one of the most popular videos in YouTube’s history did the buyers come calling. Last summer the National Geographic Channel purchased the television rights to the video, and on Sunday at 9 p.m. Eastern time, it will devote an hour to a documentary deconstructing the drama.

“Caught on Safari: Battle at Kruger” is believed to be the first hourlong documentary to be inspired by a YouTube clip. ......

Sensing they had just witnessed something special, Jason Schlosberg, another member of the safari group, asked Mr. Budzinski for a copy of the video. Mr. Budzinski tried unsuccessfully to sell it to television networks. “They all told us the same thing — they don’t accept any footage from amateurs,” he said.

Freddie aka Fraudie Mac / Market Sentiment

It´s always the reaction to the news that is important....And sending the stock higher almost 10 percent on the following news is a clear sign that the complacency has taken over again....A look at the VIX is confirming this view. On top of this Doug Kasshas observed this: "Investors Intelligence bulls are back up to 46, as bears drop to 29.9 -- at respective highs and lows since January". I think this headline via FT Alphaville sums it up nicely Not as bad as feared’ is the new code for ‘buy, buy, buy’ Here are More Reasuring Facts On Phony Mae aka Fannie Mae

Eine der wichtigsten Regeln für Anleger und Trader ist jeweils zu beachten wie der Markt auf bestimmte Nachrichten reagiert. Und wenn man nach den folgenden Neuigkeiten die Aktie fast 10 % nach oben katapultiert ist das für mich ein klares Zeichen das wir uns einem Level nähern der doch langsam wieder bedenklich wird.....Der sich rapide beruhigende VIX unterstreicht diesen Trend. Doug Kass hat diese Statistik die wunderbar zum Gesamtbild passt. "Investors Intelligence bulls are back up to 46, as bears drop to 29.9 -- at respective highs and lows since January" . Diese Schlagzeile via FT Alphaville fasst es ziemlich gut zusammen Not as bad as feared’ is the new code for ‘buy, buy, buy’ Hier gibt es mehr More Reasuring Facts On Phony Mae aka Fannie Mae

Parsing Freddie's Profit Report WSJ
Freddie Mac's earnings report more clearly than ever defined the battle lines between the company's shareholders and the government, which sees it as one of its main tools to bolster the housing market.

The report the mortgage giant issued Wednesday shows that the company's cushion for losses fell sharply in the quarter, giving it one of the weakest balance sheets in the financial sector and leaving it more vulnerable to future hits from the housing crunch.

This weakening in Freddie Mac's financial footing will unnerve politicians keen to see Freddie buy and guarantee even more mortgages to alleviate the credit crunch.

And investors sniffing around Freddie's shares may also want to pay heed to the enervated balance sheet. That is because the company likely will have to sell a large amount of new stock, diluting existing shareholders, to strengthen its balance sheet.

Freddie said Wednesday that it planned to sell $5.5 billion of common and preferred stock. "I think they'll continue to raise capital," said Paul Miller, an analyst at FBR Capital Markets.

The company's weakened state was lost on investors who rejoiced that the loss was smaller than expected and drove its shares up 9%. But the smaller-than-expected loss was primarily the result of accounting changes made in the quarter that allowed the company to book certain gains in earnings and exclude certain losses.

Freddie reclassified $90 billion in securities, boosting profit by about $1 billion compared with the fourth quarter.

Hat tip Calculated Risk

Analyst: There is a headline out there that you have level 3 assets of $157 billion. I was just wondering is that true and is that related at all to the markups of the 1.2 billion gain?

Freddie Mac: No, it is not Paul. We made a determination in the first quarter that given how widely the pricing we were getting on the abs portfolio [varied] that it no longer made sense to leave that into level two. So we essentially moved the entire abs portfolio into level three. We were still using the mean pricing that we were getting from the dealers. So we’re not using a model price. That is all that is. It has nothing to do with the trading portfolio

Another change -- related to its mortgage guarantees -- reduced a potential hit to profit by about $1 billion compared with the fourth quarter. A maneuver that delays taking credit losses also allowed the company to avoid losses in the quarter.

Excluding these and some other accounting changes, Freddie's modest $151 million loss would have been a more worrisome $2 billion.

More insights via Calculated Risk On Freddie Mac Accounting Change

One way to cut through the earnings noise is to go to the balance sheet and zero in on its leverage -- the amount of shareholders' equity Freddie has supporting its $803 billion of assets, which are the loans it has retained.

In the first quarter, Freddie's assets exceeded its $16 billion of shareholders' equity -- its leverage ratio -- by 50.2 times. Fannie's first-quarter leverage ratio was 21.7 times, while the first-quarter average for the 20 largest U.S. lenders was just under 12 times, according to data from SNL Financial.

A Freddie spokesman declined to comment on its leverage specifically. And to be fair to Freddie, some of the market losses that are driving down Freddie's equity may one day be recovered. For instance, equity plunged to $16 billion from $26.7 billion in the fourth quarter, in part because of unrealized losses on securities backed by subprime mortgages.

But if Freddie were a regular bank, its regulator wouldn't let leverage get anywhere close to 50 times. At a nosebleed level like that, the regulator would push Freddie to keep raising capital, even if some of its losses in equity might be fleeting.

Shareholders could sputter about the continued dilution, but the government won't be very sympathetic.

MBIA´s Fairytale Continues.....

And they still have an AAA rating...... If you want to have a good laugh click through the presentation MBIA´s Fairytale..... . There are so much low-lights that it is almost impossible to pick the best ones..... Warburg Pincus with their January investment at $ 31 must be proud of their due diligence...... :-). The counterparty risk is increasing.......

Schon sensationell das MBIA immer noch ein AAA Rating mit sich herumschleppt..... Kann jedem der ein bisschen ablachen möchte die nachfolgende Präsentation empfehlen. MBIA´s Märchenstunde........ . Dort sind etliche Tiefpunkte enthalten so das es unmöglich ist einzelne Punkte hervorzuheben..... Besonders glücklich muß wohl Warburg Pincus sein die groß zu $ 31 Ende Januer eingestiegen sind........ Das Risiko das eine Gegenpartei demnächst nicht in der Lage sein wird abgegebene Versprechen einzulösen dürfte demnächst explodieren........

MBIA Posts Loss of $2.4 Billion as CDO Slump Deepens Bloomberg

MBIA had insured bonds backed by home equity lines of credit and closed-end second loans totaling $21 billion at the end of 2007, according to the company.

MBIA: "Forensic experts reviewing loans" Calculated Risk

> Visit the presentation at page 38 for more details..... Funny to see that they were surprised that the " historical cumulative loss levels of 1-2%" is no longer in play......Clearly a sign that their own loss assumptions are superior to the fair value accounting....... Here comes a quote from MBIA from October 2007 MBIA / Denial "The Company believes that the “mark-to-market” loss does not reflect material credit impairment.".... A few billion in real losses later the confidence outside the rating agencies should be fading at light speed.......

> Mehr nette Details gibt es auf Seite 38 der Präsentation...... Besonders herzerfrischend ist das MBIA sich überrascht zeigt das die historisch niedrige Ausfallrate plötzlich nicht mehr zu gelten scheint..... Ein klares Anzeichen dafpür das man auch weiterhin locker auf die angeblich konservativen Modelle von MBIA vertrauen kann.....The Company believes that the “mark-to-market” loss does not reflect material credit impairment. Ich erinnere noch gerne an das MBIA Zitat aus dem Obktober 2007 MBIA / Denial "The Company believes that the “mark-to-market” loss does not reflect material credit impairment."..... Nach ein paar Mrd. realen Verlusten dürfte die Glaubwürdikeit ausserhalb der Ratingagenturen wohl ein wenig gelitten haben......

UPDATE via Calculated Risk / Bloomberg Moody's: Concerned about MBIA and Ambac

MBIA Inc. and Ambac Financial Group Inc. had ``meaningfully'' higher losses on home-equity loans and collateralized debt obligations than anticipated, raising concern about their Aaa status, Moody's Investors Service said. The first-quarter losses reported by the companies in the past two weeks elevate ``existing concerns about capitalization levels relative to the Aaa benchmark,'' Moody's, unit of Moody's Corp., said in a statement today.

Yves from Naked Capitalism sums it up nicely!

Moody's issued the weakest warning it could about the two big monolines. Most observers did not expect the bond insurers' last round of fundraising to carry them very far, and that view appears to be playing out on schedule. We may be moving towards a repeat the January-February drama, with the rating agencies saber rattling until the bond guarantors raise enough money to tide them over for another bit.

> I think we can call this an improvement...This time it took the agencies not years to react to the obvious (sarcasm off).....

> Ich denke man kann das als Verbesserung einstufen....Immerhin dazuert es jetzt nicht mehr Jahre um das Offensichtliche zu erkennen....Ich hoffe meine ironischenhen Bemerkungen werden nicht als echte Würdigung der Ratingagneturen verstanden.... :-)

Details/Trends HSBC US Business

Besides the fact that they have written down billions i i think the most interesting part are the details on the US part of their business (especially on loan modifications ). Their acquisition of Household five years ago was probably one of their worst investments ever.... At least they can easily weather the storm without diluting shareholders (thanks to their Asian exposure ) . The following presentation gives a nice overview of Details HSBC US Business and is hinting there is much more pain to come......

Abgesehen von den erneueten Mrdabschreibungen an die man sich inzwischen gewöhnt hat ist es hilfreich einen Blick auf die Details des problembeladenen US Geschäfts von HSBC zu werfen ( besonder interesaant das Tempo der Kreditmodifikation ).... Kein schöner Anblick...... Der Kauf von Household in den USA vor 5 Jahren war rückblickend wohl der schlechteste Kauf in der ruhmreichen Geschichte von HSBC. Nichtsdestotrotz wird HSBC auch dank der starken asiatischen Wurzeln diesen Sturm wohl ohne eine größere Verwässerung der Aktionäre überbrücken können. Die nachfolgende Präsentation gibt einen schönen Überblick über das Details HSBC US Business und verdeutlicht das hier sicher noch mehr an Abschreibungen kommen wird.....

HSBC Statement
Our pre-tax profits in North America declined significantly against the same period last year, adversely affected by higher loan impairment charges in the US consumer finance business and further write-downs in Global Banking and Markets. These losses were partly offset by gains reported on HSBC's own debt held at fair value.

Loan impairment charges in the US consumer finance business were US$3.2 billion, significantly higher than the US$1.6 billion recorded in the first quarter of 2007 but notably less than the US$4.6 billion recorded in the fourth quarter of 2007, in part reflecting seasonal trends.

It seems likely that the deterioration in the US housing market will extend into 2009; it is also clear that US economic growth has slowed and there is an increased likelihood of a recession this year. Against this economic backdrop, we continued to experience higher delinquencies across our major lending portfolios, though these were broadly in line with our expectations at the end of 2007.

The vast majority of our mortgage customers continue to meet their commitments. At 31 March 2008, 5.0 per cent of mortgages in our US branch-based consumer lending business were two months or more overdue, compared with 4.2 per cent at 31 December 2007. The equivalent figures for our mortgage services business were 12.5 per cent and 11.2 per cent, respectively. This trend of rising delinquency ratios will continue as balances continue to be run off.

Reported delinquency percentages in our credit and private label card products were also affected by the weakening US economy, as well as by a shift in product mix, portfolio seasoning and lower origination balances. The latter was the result of action taken to curtail lending growth. At the end of the quarter, the two months or more delinquency rate for credit cards was 5.9 per cent and 3.6 per cent for private label cards, compared with 5.8 per cent and 3.4 per cent, respectively, at the end of 2007.

We have continued to take positive action to mitigate, where appropriate, the effects of the housing market decline on our customers. In the first quarter of 2008, we modified about 1,500 loans with an aggregate balance of approximately US$270 million ahead of their adjustable-rate mortgage ('ARM') resets; this brings the total number of loans modified to around 11,900 and the aggregate balance to some US$1.9 billion.

> At the end of 2007 they had $35.4 billion in residential mortgages outstanding.

> Ende 2007 hatte HSBC 35,4 Mrd $ an Hypotheken in den Büchern.

As market conditions pointed to an extended housing market decline, we began to offer, selectively, some longer term modifications, generally providing assistance for either two or five years.

Daily Show : Back in Black - Tax Rebate :-)

Have a nice weekend.....

Allen ein schönes Pfingsfest.... Bei dem Wetter kann ja nichts schief gehen

Bankruptcies And Defaults Gather Pace

And the "official" recession hasn´t even started yet......

Und das obwohl die "offizielle" Rezession noch nicht einmal begonnen hat.......

Bankruptcies and defaults gather pace FT

The number of companies defaulting on their junk-rated debt and filing for bankruptcy in North America is running at its fastest pace in five years amid the slowing economy and contraction in credit markets.

So far this year, 28 “entities” have defaulted, according to Standard & Poor’s. The defaulted debt of the one Canadian and 27 US companies totals $18.4bn and exceeds the 17 defaults in the US for all of last year

As economic conditions deteriorated...and volatility in the financial markets protracted, corporate casualties began to emerge at a rate unseen in years,” said Diane Vazza, head of S&P’s Global Fixed Income Research Group. “The surge of defaults in the early months of 2008 is the first leg of an extended period of high default occurrences that will characterise the rest of 2008 and 2009.”

> and much much longer......

> und wohl noch wesentlich länger......

S&P said the pace of US defaults in the first five months of the year is the fastest since 2003.

The US is leading the global default rate for companies, said Ken Emery, senior vice-president at Moody’s.

The global default rate for speculative-grade companies rose to 1.7 per cent in April, up from 1.5 per cent in March and a multi-decade low of less than 1 per cent last year, said Moody’s.

Meanwhile, in the US the default rate rose from 1.8 per cent in March to 2.1 per cent in April. Moody’s expects the global default rate to reach 4.98 per cent by the end of the year, with defaults in the US reaching 5.7 per cent. In Europe the default rate is currently 0.7 per cent.

> I assume that we no way near the peak........ Especially when you look at the following table..... The market share of junk in 2007 was even more depressing.....

> Bin mir ziemlich sicher das die aktuellen Zahlen den USA nicht das Ende der Fahnenstange sind.... Das gilt besonders dann wenn man sich die nachfolgende Tablle ansieht...... Für das Jahr 2007 sah das ganze sogar noch depresseiver in Sachen Junkmarktanteil aus......

This week the latest Federal Reserve Senior Loan Officer survey highlighted tougher lending conditions from banks to lower-rated corporate borrowers. In spite of the recent rally in credit markets, the number of junk-rated companies trading at highly elevated levels remains well above normal.

“This increases the risks to the weakest links, entities rated B minus or lower,” said S&P. Weak links, which are three times more likely to default than the rest of the speculative grade market, rose to 101 entities in April. This was compared with 78 at the end of 2007 and a 10-year low of 64 in July.

“If the recession is deeper and longer than expected and lending constraints worsen more markedly, the default rate could be significantly more pronounced and severe, possibly reaching 8.5 per cent,” said S&P. Such a rate would reflect 136 defaults.

More Reasuring Facts On Phony Mae aka Fannie Mae

This is an update on yesterdays post Reasuring Phony Mae & Fraudie Mac Facts........ The stock was under pressure premarket ( down 15 percent ) and closed higher with almost 9 percent. No wonder when you read the "bullish" points the WSJ is making...... Got gold......? More via Minyanville Five Things You Need to Know: Fannie Mae Inadvertently Predicts Housing Bottom & Barry Ritholtz Fannie Mae is Fantastic !

Das ist ein Folgepost zum dem gestrigen Eintrag Reasuring Phony Mae & Fraudie Mac Facts........ Vorbörslich war die Aktie start unter Druck und notierte bis zu 15 % schwächer. Geschlossen hat Phony Mae 9% höher. Muß wohl an den bullishen Fakten die das WSJ zusammengetragen hat liegen..... Got Gold....? Hier teilweise substanzielles von der FAZ Riesige Verluste können Fannie-Mae-Aktie nicht dauerhaft belasten sowie substanzielles via Minyanville Five Things You Need to Know: Fannie Mae Inadvertently Predicts Housing Bottom sowie Barry Ritholtz Fannie Mae is Fantastic !

Will $6 Billion Do for Fannie? WSJ
That is the amount of new money the mortgage giant said Tuesday that it would raise through the sale of common and preferred stock. But Fannie Mae could need even more capital if it really wants to shore up its balance sheet while also backstopping the national housing market.

How much more depends on an investor's view of the best way to measure the firm's net worth, as well as the amount of capital it should put aside against its burgeoning mortgage book. Bearish outlooks on these counts lead to scenarios where Fannie needs to raise anywhere from $5 billion to about $15 billion in additional funds.

Underpinning those pessimistic outlooks are the considerable headwinds that Fannie continues to face. The company posted a $2.2 billion first-quarter loss, for its third consecutive quarter in the red. The government-sponsored provider of funds for home mortgages expects national housing prices to fall 7% to 9% this year, while its exposure to hard-hit areas such as California and Florida could cause it even greater pain.

Fannie may soon have to book some big, unrealized losses it has been sitting on, further reducing its book value, or net worth.

Especially alarming: Based on market values for assets it holds, Fannie's net worth attributable to common stockholders would have been a negative $2 billion at the end of March.

For its part, Fannie doesn't see any need to raise more than $6 billion in capital. Chief Executive Daniel Mudd said on a conference call that the new funds will protect Fannie's balance sheet against future losses, allow it to expand its business and enable it to act as a bulwark for the housing market nationwide.

Mr. Mudd told investors that -- including the $6 billion in new capital, a 29% dividend cut and regulatory capital relief -- Fannie will have $48 billion in capital. That, he added, is $17 billion more than the company's federal regulator said it needs.

"We will feast off this book of business we're putting on for many years to come," Mr. Mudd said. Fannie's stock rose $2.52, or 8.9%, to $30.81 at 4 p.m. in New York Stock Exchange composite trading.

Some investors even felt Fannie didn't need to raise any new money. But that view is based on the idea that market-value losses shown by Fannie are fleeting.

Bears don't buy that, especially given the unprecedented scope of the housing crisis. They say it is a mistake to look at Fannie's regulatory capital number, which excludes large unrealized losses.

These investors argue that Fannie's market-value balance sheet gives a clearer picture. At the end of March, this market-value view showed the firm with total net worth of $12.2 billion, a bruising $23.6 billion decline from $35.8 billion at the end of 2007.

This figure comprised $14 billion in net worth attributable to preferred stock holders, while that attributable to common holders was negative $2 billion.

That $12.2 billion is the effective balance-sheet cushion against future losses. But it is equivalent to only 1.4% of Fannie's $866.7 billion in assets, measured using market values.

Not all the market-value losses will come to pass, of course. But some likely will. Fannie, for instance, disclosed that $16.9 billion of the $23.6 billion decline in market-value net worth came from increasing the value of a liability that represents future payouts on mortgage guarantees.

The increase in this guarantee obligation reflects, in part, new, higher estimates of credit losses. If these credit losses were to occur, they would show up on Fannie's books as cash payouts and realized losses.

Fannie may face pressure on earnings and its net worth in other areas. It disclosed that at the end of March it had $9.2 billion in unrealized losses on securities that haven't so far been reflected in earnings. Of these, $5.4 billion are more than a year old.

In addition, Fannie has so far balked at creating a special reserve against any portion of its $17.8 billion in deferred tax assets. The company can use those only to offset profit. As its loss-making period stretches, arguments could grow louder that Fannie needs to reserve against part of this asset. Doing so would result in another charge against profit that would hit net worth.

Those kind of charges could leave Fannie's $6 billion cushion looking awfully thin.

Colbert : The Word - Free Gas!

Did Hillary and McCain really propose this.....? Make sure you also see
Gas Pains / Mad Max from the Daily Show with Rob Riggles

Verglichen mit Hillary und McCain stehen unsere Politiker plötzlich nicht mehr ganz so schlecht da..... :-) Empfehle zudem noch diesen Clip
Gas Pains / Mad Max von Rob Riggles.

Reasuring Phony Mae & Fraudie Mac Facts.......

Schould be an interesting call today........ Got gold? UPDATE: Stock under pressure premarket......... No wonder when you read through the Q1 Investor Summary Fannie Mae ( especially the delinquency rates starting page 22 ). Now up over 5 percent!

Sind das nicht beruhigfende Daten und Fakten zu den wohl wichtigsten Finanzinstituten weltweit...... Wird sicher eine interessante Telefonkonferenz........Got Gold? UPDATE: Aktie vorbörslich stark unter Druck. ......Sollte bei Durchsicht der folgenden Präsentation Q1 Investor Summary Fannie Mae nicht weiter verwundern. Lege Euch besonders die Charts zu den notleidenden Krediten ab Seite 22 ans Herz. Inzwischen über 5% im Plus!

Doubts Raised on Big Backers of Mortgages NYT
Fannie Mae and Freddie Mac now overwhelmingly dominate it, handling more than 80 percent of all mortgages bought by investors in the first quarter of this year. That is more than double their market share in 2006.

But some financial experts worry that the companies are dangerously close to the edge, especially if home prices go through another steep decline. Their combined cushion of $83 billion — the capital that their regulator requires them to hold — underpins a colossal $5 trillion in debt and other financial commitments.

The companies, which were created by Congress but are owned by investors, suffered more than $9 billion in mortgage-related losses last year, and analysts expect those losses to grow this year. Fannie Mae is to release its latest financial results on Tuesday and Freddie Mac is to report earnings next week.

bigger/größer

The companies are sitting on as much as $19 billion in additional losses that they have not yet fully acknowledged, analysts say. If either company stumbled, the mortgage business could lose its only lubricant, potentially causing the housing market to plummet and the credit markets to freeze up completely.

By the end of last year, the companies had guaranteed or invested in $717 billion of subprime and Alt-A loans, up from almost none in 2000.

Last year, in return for buying billions of dollars of subprime mortgages to help stabilize the market, executives won the right to expand their investment portfolios. In March, the companies agreed to raise more capital within the year. In exchange, they received an additional $200 billion in purchasing power.

UPDATE:

I think you can add another $ 200 bilion..... Party on.....

Nach diesen Meldungen dürfte wohl noch mal eine ähnliche Summe hinzukommen.... Die Party geht weiter.....

Marketwatch Fannie Mae's federal regulator said on Tuesday it will reduce the company's capital-surplus requirement to 15% from 20% when Fannie Mae completes a new capital-raising plan. Fannie said Tuesday it is planning to raise $6 billion in new capital. The mortgage-finance giant reported a first-quarter loss of $2.2 billion on Monday, or $2.57 a share, citing credit-related expenses

> On top of this Fannie is hinting that another 5 percentage point reduction to 10 will be in place in September 2008 ( see end of page 1 Press Release!)

> Darüberhinaus wird angedeuted das eine weitere Reduzierung um 5 Punkte auf dann 10% wohl Ende September kommen wird ( siehe Ende Seite 1 Press Release )

“We’ve taken tremendous risks by loosening these companies’ purse strings,” said Senator Mel Martinez, Republican of Florida and a former secretary of housing and urban development. “They could cause an economywide meltdown if they got into real trouble and leave the public on the hook for billions.”

> When watching this tiny spread it should be clear that the market is already assuming that there will the biggest bailout ever....

> Beim Betrachten dieser lächerlichen Risikoaufschlägen sollte jedem klar sein das hier der gigantischte Bailout der Geschichte bereits als gegeben hingenommen wird. Leider wohl mal wieder zurecht.....

Last month, the companies promised to pump money into the more expensive reaches of the housing market. In return, Congress temporarily raised the cap on the size of the mortgages they can buy to almost $730,000 from $417,000

> Here is more on Phony & Freddie from Contrary Investor

Again, please remember that the important numbers to focus upon are the twelve month moving average amounts. These are the numbers that are really showing us trend and potentially important trend change from a historical perspective. In fact, although it's just our opinion, we believe what you'll see below is not being given enough attention in financial market circles these days. First up is foreign purchases of US government agency securities. In the past, what has attracted foreign interest, at least we believe so, has been the yield spread differential between government agency paper and Treasuries. You can clearly see that since the summer of last year, foreign community purchasing of US government agency paper has cooled down meaningfully. The last time we saw this type of a drop off was when it became known that Freddie, and then Fannie a short while later, were no longer able to file audited financial statements

Remember, these are numbers through February. What had not yet transpired when these numbers were reported was the revelation of increased lending limits for Fannie and Freddie in conventional mortgage lending from $417K to $729K. Moreover, the OFHEO had also not yet allowed lowered capital requirements for these two mortgage paper behemoths, further allowing them to mushroom their balance sheets relative to total capital should they choose to do so in the future (which they will choose to do so - count on it). The question becomes, what will foreign community reaction to these two news items be come the March and April numbers for foreign purchases of US agency paper? Implicit with the hike in nominal dollar lending limits and the allowance of balance sheet growth on what will be a defacto smaller capital base is increased financial risk. You already know we'll be sure to let you know foreign reaction vis-à-vis forward purchasing of agency paper. The bottom line being? The answer will be a matter of confidence. And it sure as heck appears clear that confidence in US financial paper has already become a very meaningful issue for the foreign community really since last summer.

As you'll see below, to suggest that the foreign community has been an important support to cost of capital at the government agency level, and ultimately the cost of mortgage debt in the US over time, is a wild understatement.

> The US should be very fortunate that they have found enough "dump" money to accumulate these kind of secirities..... CHAPEAU ( no kidding )!

> Die US können sich in der Tat wirklich glücklich schätzen das es Ihnen gelungen ist soviel ausländischen Kapital in solch Papiere zu lotsen. Ziehe aufrichtig meinen Hut vor solch guter PR!

Frozen Grand Central

Almost as impressive as frozen credit markets....... ;-)

Fast so beeindruckend wie eingefrorenen Kreditmärkte...... ;-)